Why strong GDP is stirring doubt
Indonesia reported another headline figure near five percent in the third quarter, yet a stack of everyday indicators points to softer momentum. Statistics Indonesia said gross domestic product expanded 5.04 percent in July to September compared with a year earlier, only a touch slower than the second quarter’s 5.12 percent. At the same time, car dealers sold fewer vehicles, cement dispatches slipped, and more workers filed claims for benefits. The mix has stirred a public debate over whether the headline masks a slowdown that households and businesses already feel. The stakes are high. Growth that looks stronger on paper can shape wage talks, investment plans, and interest rate paths. If the number is overstated or misunderstood, policy can miss the target and foreign investors can lose confidence.
Officials credit tourism, education, business services, and steady exports for holding up activity in the third quarter. A 24.44 trillion rupiah stimulus rolled out in June and front loaded shipments ahead of new United States tariffs also helped steady momentum. Yet several gauges point the other way. Automobile sales fell 17.4 percent in the quarter. Domestic cement sales dropped 2.4 percent in the first nine months of 2025. Jobless claims jumped, and the share of workers drawing claims early in 2025 climbed to 25 percent from about 12 percent in past years. Tax receipts over the first nine months of 2025 fell 4.4 percent from a year earlier. Employers report weak demand and rising costs while the rupiah has depreciated.
Indonesia has frequently reported growth near five percent in recent years. The second quarter figure beat many forecasts and raised eyebrows because real incomes and investment looked soft and holiday effects were expected to favor the first quarter. The third quarter reading, at 5.04 percent, landed close to poll estimates, but the gap between the GDP trend and high frequency indicators still looms large. That gap, and what is driving it, is now the center of a dispute that reaches from factory floors to cabinet offices.
What the official data says
Statistics Indonesia reported that GDP grew 5.04 percent year on year in the third quarter and 1.43 percent compared with the previous quarter on a non seasonally adjusted basis. That followed 5.12 percent growth in the second quarter and a 4.04 percent quarter to quarter rebound after the first quarter lull at 4.87 percent year on year. Through the first three quarters of 2025, GDP grew near five percent. Manufacturing, the largest sector, expanded 5.54 percent from a year earlier in the third quarter, a touch slower than the previous quarter’s 5.68 percent. Exports increased each month from July through September, a trend helped by attempts to ship goods to the United States ahead of a 19 percent tariff. A June fiscal package provided cash aid and transport subsidies that lifted mobility and spending through the summer.
Earlier, the second quarter breakdown showed how the pieces add up. Household consumption accounted for about 54 percent of the economy and contributed roughly 2.64 percentage points to the quarter’s growth. Gross fixed capital formation, a measure of investment in construction, machinery, and equipment, made up close to 28 percent of GDP and grew nearly 7 percent year on year, contributing about 2.06 percentage points. Government consumption added a small 0.22 percentage point. Exports and imports both grew at double digit rates as tourism revived and firms brought in raw materials and capital goods. The manufacturing sector contributed the largest single share to growth, followed by trade, information and communication, and construction, while Java continued to produce more than half of national output.
How GDP is built and why it can mislead
GDP totals the value of goods and services produced in a period. Several effects can lift the headline even while wallets feel tight. Stronger exports add to GDP, but if import growth slows or prices shift, the arithmetic on net trade can support the final number. A surge in construction can raise measured investment, even if investment credit from banks is lagging. Seasonal factors like school holidays can lift services such as transportation, restaurants, and education. One quarter can also reflect front loaded activity when businesses rush shipments before policy changes. These patterns are common in open economies and can blur the link between GDP and day to day sentiment.
Finance Minister Sri Mulyani Indrawati has defended the integrity of the data and the statisticians who produce it, stressing that the process follows transparent methods and international standards.
“I believe BPS maintains its integrity. The agency has explained its methodology, data sources, and the figures it produces in detail.”
The head of Statistics Indonesia, Amalia Widyasanti, has made a similar case, saying the office relies on complete backing data that has passed verification.
“We already have complete supporting data. Everything has been verified and is solid.”
From the Presidential Communication Office, Hasan Nasbi said the government has been consistent in reporting the economy in good times and in soft patches, urging critics to look at the role of investment as well as consumption.
“If growth increases, it is reported. If it decreases, that is also reported. This is not like predicting horoscopes.”
Why economists are skeptical
Many economists and business groups still read the pulse as weak. Car sales fell 17.4 percent in the third quarter from a year earlier. Domestic cement sales declined 2.4 percent in the first nine months of 2025. Jobless claims climbed to 13,200 in April from 4,816 a year earlier and 844 in 2022. The ratio of workers making claims in January through April rose to 25 percent from roughly 12 percent in the same period of prior years. Several analysts expected third quarter growth below five percent and point to subdued consumer demand, cautious investment plans, and a depreciating currency.
Signals pointing down
Business sentiment has been hit by efficiency drives that cut back travel and infrastructure spending, a slower pace of investment credit, and worries about policy uncertainty. Employers warn that rosy growth headlines could feed wage demands that companies cannot meet while margins are thin. A softer tax take in the first nine months of the year underlines the strain on profits and incomes. Household anecdotes in cities echo the data, with store owners noting more browsers than buyers and diners trading down to cheaper menus.
Esther Astuti of Diponegoro University has cautioned that overplaying the growth story can backfire by eroding the credibility that attracts long term capital. Two veteran analysts sharpen the critique.
“The narrative seems to be built toward fulfilling a political promise, not reflecting economic realities,” said Bhima Yudhistira, who argues that politics should not shape the scoreboard for the economy.
Tauhid Ahmad, a senior economist who tracks investment, questions the leap in measured capital formation in the second quarter given what banks and firms report.
“PMTB covers capital expenditures like machinery, equipment, and buildings. Investment credit growth is currently slowing in both the public and private sectors. That suggests the reported numbers may not align with actual investment conditions.”
The jobs puzzle and wages
Employment data adds to the confusion. The open unemployment rate edged down to 4.67 percent in February 2025. Specialists point out that Indonesia’s definition counts anyone who worked at least one hour in the reference week as employed. In a labor market with a large informal sector, short hours, and part time side jobs, that can produce a low unemployment rate even when underemployment and job insecurity are high. Jobless claims, by contrast, have surged. The early 2025 ratio of workers drawing claims rose to about 25 percent from around 12 percent in past years, a sharp move that businesses say better matches their experience.
Wage setting could be the next flashpoint. Minimum wages are adjusted annually based on inflation and growth. Provinces move at different speeds, with North Maluku’s pay rising quickly over the past decade as nickel projects ramped up while East Nusa Tenggara saw slower gains. Employers fear that a perception of booming growth will harden union demands for 2026 even as firms face rising input costs, weak orders, and a weaker rupiah. That mix can push companies to delay hiring and investment until the outlook is clearer.
Gauging demand on the ground
Consumer data is mixed. Retail sales grew 4.7 percent in July and 3.5 percent in August, helped by subsidies and school holidays. Restaurants, hotels, and transport benefited from travel and tourism. Large ticket items told a different story. Vehicle purchases slumped. Surveys of household sentiment show caution and fragile real wage growth. Factory activity continued to expand in the third quarter, but manufacturing growth eased to 5.54 percent from 5.68 percent in the prior period, a small but telling downshift.
Some analysts see policy support as the main prop in this period.
“Investment and consumption driven by policy support is really the name of the game in the third quarter,” said Adam Ahmad Samdin of Oxford Economics, pointing to cash aid, transport subsidies, and government backed projects.
Trade, tariffs, and exports
Trade provided an offset. Goods exports held up through the quarter as companies accelerated shipments to the United States ahead of tariff changes in August. Imports dipped in July and August, then rebounded in September, a pattern consistent with front loading and inventory management. Net exports helped the GDP print even as parts of domestic demand cooled. This pattern can be temporary. Indonesia is less exposed to global supply chains than some neighbors, yet the economy remains sensitive to commodity cycles and Chinese demand for raw materials.
One market economist summed up the quarter’s trade dynamics this way.
“Goods exports continued to benefit from front loaded shipments, while import growth was modest,” said Radhika Rao of DBS Bank, adding that the lift from trade could fade as the tariff shock settles and external demand softens.
Politics, markets, and the Danantara question
Financial markets have been volatile, a sign that investors are weighing domestic risks as well as global ones. In March, the Jakarta Composite Index fell sharply enough to trigger a trading halt. Foreign investors logged heavy net sales this year. Regulators temporarily eased buyback rules to stabilize shares. Analysts cite a heavy debt load at several state builders, soft tax receipts, and rising non performing loans as headwinds. Currency weakness has raised costs for firms with dollar liabilities.
The policy debate extends to the launch of Danantara, a new sovereign investment vehicle created to consolidate state owned assets and attract capital for infrastructure, energy, and downstream industry. Supporters say professional management can raise returns and ease pressure on the budget. Skeptics worry about governance, transparency, and the risk that the fund could be used to rescue underperforming firms without reform. The credibility of the fund’s guardrails, board independence, and audit processes will matter for investor confidence.
President Prabowo Subianto has set an ambitious target to lift growth to 8 percent during his term, pitching bold goals as a motivation tool. He has faced skeptics at home and abroad and has used the criticism to rally ministries, telling an audience that even foreigners teased they would buy him dinner if he reached the goal. That political context shapes expectations, which helps explain why both the government and critics are so focused on the accuracy of the growth readings.
How can GDP be five percent when it feels slower
The headline can diverge from daily life for several reasons. Net exports can lift GDP even in a soft domestic patch. If firms push out shipments ahead of tariffs and import growth eases, the net trade contribution increases. Relative prices also matter. The GDP deflator adjusts for inflation across sectors, so changes in commodity prices can tilt the calculation. When commodity prices stabilize or fall, the real value of certain outputs can look better even if nominal sales are subdued.
Investment is another source of confusion. Gross fixed capital formation counts construction spending by government and the private sector along with machinery and equipment. Projects that were approved earlier can move forward when credit is still tight, and public works can advance even as private appetite cools. Inventories can also swing quarter to quarter. These factors can produce a firm investment reading even when bank lending grows slowly.
Finally, measurement limits play a role. Indonesia’s economy has a large informal segment where underemployment is common and hours ebb and flow. Surveys are designed to capture these realities, but they are not perfect, and revisions are a normal part of national accounts. High frequency indicators like auto sales, cement dispatches, and jobless claims are valuable cross checks. When the signals diverge for more than a quarter or two, it is sensible to ask what is driving the split and whether it will close.
What to watch next
Several threads will shape the next leg of the story. First, watch whether exports lose steam as the tariff front loading effect fades and as China’s demand shifts. Second, track domestic demand through vehicle sales, cement dispatches, and retail sales beyond the holiday lift. Third, follow investment credit growth, building permits, and capital goods imports to test the strength of investment beyond public works. Fourth, monitor jobless claims and underemployment alongside the headline unemployment rate to gauge labor market stress. Fifth, keep an eye on wage talks for 2026 in the provinces and on any formula changes that link wages to headline GDP. Sixth, note tax receipts, which are a window into profits and incomes. Seventh, look for signs of how Bank Indonesia balances currency stability with support for growth after the rate cuts delivered since late 2024. Finally, watch the policy signals around Danantara and state owned enterprise reform, as governance clarity can affect both investment and the currency.
Key Points
- GDP grew 5.04 percent year on year in the third quarter after 5.12 percent in the second quarter.
- Car sales fell 17.4 percent in the third quarter and domestic cement sales dropped 2.4 percent in the first nine months of 2025.
- Jobless claims rose to 13,200 in April, and the early 2025 ratio of workers making claims climbed to about 25 percent from around 12 percent in prior years.
- Tax receipts in the first nine months of 2025 decreased 4.4 percent from a year earlier.
- The government defends the credibility of Statistics Indonesia’s methods, while critics question investment and employment metrics.
- Exports were supported by front loaded shipments ahead of a 19 percent United States tariff, and a June stimulus aided household spending.
- The open unemployment rate was 4.67 percent in February 2025, but the definition includes anyone who worked at least one hour in the reference week.
- Market volatility, foreign outflows, and concerns about governance at the new Danantara fund weigh on investor confidence.
- Domestic demand appears uneven, with autos weak and retail supported by subsidies and holidays.
- Key risks include softer external demand, policy uncertainty, wage pressures, and a weaker rupiah.
